Like many mining companies, Anglo American (AAL) has big plans to expand its copper business (20% of revenue for the trailing 12 months ended June 30, excluding operations management expects to sell). Its 1.5 billion pounds of production in 2009 made Anglo the world's sixth-largest producer, behind Codelco (4.4 billion pounds), Freeport-McMoRan (4.1 billion), BHP Billiton (2.6 billion), Xstrata (2.0 billion), and Rio Tinto (1.6 billion). Management aims to raise output to 2.5 billion pounds by 2015, a 72% increase.
Anglo's current production profile is Chile heavy, with five mines in the country representing nearly all output. The most important assets in Anglo's copper portfolio, measured by current production and mine life, are Los Bronces (526 million pounds in 2009, 39-year life) and Collahuasi (520 million pounds attributable production, 33-year life). Other assets, including Mantos Blancos (199 million pounds, 6-year life), Mantoverde (136 million pounds, 5-year life), and El Soldado (91 million pounds, 18-year life) are less important for Anglo's prospects owing to their lower output and shorter mine life.
Los Bronces and Collahuasi also occupy more favourable cost curve positions than their smaller counterparts: The two big mines sit in the second quartile of the industry supply curve, whereas the other three are in the fourth quartile. Anglo's copper business occupies a fairly middling cost curve position on a consolidated basis, with average cash costs in 2009 around $1.00 per pound (the firm did not report an exact value), compared with Codelco's $1.15, Freeport's $0.76, BHP's $0.91, Xstrata's $1.07, and Rio Tinto's $0.46.
We expect Anglo's relative cost position will improve following a major expansion project at Los Bronces, which is expected to nearly double annual output to roughly 1 billion pounds. The brownfield expansion, which should reach full production in the fourth quarter of 2012, would make Los Bronces the world's fifth-largest copper operation. Owing to greater economies of scale, the expansion would also improve the mine's average cash operating cost. The Los Bronces district has potential for expansion even beyond the new level, owing to two adjacent deposits (San Enrique Monolito and Los Sulfatos) discovered in August 2009.
Beyond Los Bronces, Anglo has a solid array of growth options. On the brownfield side, the biggest opportunity would be an expansion of Collahuasi (44% owned by Anglo, with Xstrata owning 44% and Mitsui owning 12%) from current annual production levels around 1.2 billion pounds to 2.2 billion. An expanded Collahuasi, conceptual studies for which are expected to be completed in early 2011, would challenge Chile's Escondida (owned by BHP, Rio Tinto, and Mitsubishi) for the title of world's largest copper mine.
On the greenfield side, opportunities would find Anglo expanding outside its Chilean home into Peru and potentially Alaska. Possible Peruvian projects include Quellaveco (500 million pounds per year) and Michiquillay (660 million pounds per year). Neither project has yet received board approval, but Quellaveco was submitted for board approval in the second half of 2010, with an eye toward full production in 2015. The Michiquillay project, as currently conceived, could begin production in 2018. Anglo's Pebble project in Alaska (potentially a 770 million pound per year operation with significant gold and molybdenum byproducts) seems unlikely to gain much traction anytime soon, given significant environmental concerns.
See our analysis of Anglo American’s copper, platinum and iron operations.
